Loan Refinance Guru

Determining if refinancing your mortgage will save you money depends on what your plans are for the future. With an adjustable rate mortgage your interest rate is likely to rise at the end of the fixed rate period. This makes many home owners nervous that their rising interest rate will cause their payments to increase to unaffordable amounts where they will not have the ability to budget their money in order to maintain the lifestyle they are accustomed to. To help you decide if refinancing is a smart move for you, you should consider many factors about your current loan and your personal circumstances including:

• How long do you plan to stay in your home? If you have a mortgage loan that you still have 28 years to pay on and your fixed rate period is over in one year, but you are planning to move out of the home in two years refinancing would cost you more money than it would save you because the cost of refinancing would not outweigh the savings of lower monthly payments. Refinancing may save you money in the long run, but generally costs you money in the short run. However, if you are planning to stay in your home for the duration of your loan it would probably be a good move to refinance to a fixed rate mortgage before your interest rate becomes adjustable on your ARM mortgage and before interest rates rise.
• How much longer do you have to pay on your current mortgage? If you have a current fixed rate mortgage and you are considering refinancing for a lower interest rate but you only have 8 years left to pay off your mortgage it may not be a good idea to refinance. Consider the cost of refinancing compared to the interest savings and you may lose money by refinancing when you are close to the end of your mortgage term. However, if you still owe 24 years of payments on your current mortgage and you can significantly lower your interest rate it could save you a lot of money to refinance. If you have an adjustable rate mortgage and still have many years to pay on your mortgage it is a good idea to refinance to a FRM because ARM interest rates tend to grow consistently over time.
• Does your current mortgage require mortgage insurance? If you pay mortgage insurance and your home has appreciated since you first purchased it, check and see if you have built enough equity in your home to no longer need the insurance. Generally fixed rate mortgages have lower mortgage insurance premiums than adjustable rate mortgages and if you are refinancing from an adjustable rate to a fixed rate your monthly payments may not go up because the lower insurance rate may offset the slightly higher interest rates that come with a fixed rate mortgage.
• Does your current mortgage have a prepayment penalty? Many mortgages have prepayment penalties if you refinance before a set amount of time that is designated in your mortgage contract. Consider the cost of your prepayment penalty when you are determining if refinancing is a good option. The cost of paying off your prepayment penalty is usually financed into your new mortgage so there is no out of pocket expense, but the cost is still there for you to pay off as part of your new mortgage.
• How well do you budget your finances? If you need to have a set monthly mortgage payment in order to budget your expenses then a fixed rate mortgage is probably best for you. With adjustable rate mortgages your interest rate changes which causes your monthly mortgage payment to change and it may be difficult for you to financially handle the fluctuations in your payments.
   

If you are thinking about refinancing your current mortgage make sure to take all of these things into consideration. Also remember that your lender is in the business of making money so you need to keep an eye on your own best interests when it comes to your mortgage, your home, and your financial security for the future.

Learn about predatory lending practices and how to protect yourself from it.

Copyright  2006 - Loan Refinance Guru